Treasurys rally as stocks stage big sell-off

NEW YORK 
Treasury prices rebounded Friday as a big sell-off in the stock market sent investors scurrying for the safety of government debt.

In late trading, the benchmark 10-year Treasury rose 30/32 to 101 31/32, sending its yield down to 3.39 percent from 3.50 percent. That yield is closely tied to consumer borrowing rates on loans such as mortgages.

The gains in Treasurys came as stocks plunged following a government report showing a drop in personal spending. Though the 0.5 percent decline was in line with forecasts, it was the biggest slide in nine months and followed a 1.3 percent jump in August fueled by the government's popular Cash for Clunkers car rebate program. All the major stock indexes fell at least 2.5 percent, including the Dow Jones industrials, which lost about 250 points.

The report was the latest evidence that consumers are still holding off on spending, without which the recovery could falter.

The Labor Department also reported Friday that personal income, which fuels future spending, was flat in September compared with the previous month. Meanwhile, the Reuters/University of Michigan consumer sentiment index fell to 70.6 in October from 73.5 in September.

The day's reports dampened the market's enthusiasm over Thursday's stronger-than-expected reading on the nation's third-quarter gross domestic product. The Commerce Department said GDP rose 3.5 percent in the July-September period following four straight quarters of declines. The report propelled stocks to their best day in three months and sent Treasurys tumbling.

But concerns about consumers overwhelmed the market Friday, and added to worries that too much of the GDP growth was due to government stimulus.

In other trading, the 30-year bond rose 1 28/32 to 104 19/32. Its yield dropped to 4.23 percent from 4.34 percent.

The two-year note rose 6/32 to 100 7/32, pushing its yield down to 0.89 percent from 0.99 percent.

The yield on the three-month T-bill fell to 0.04 percent from 0.05 percent. Its discount rate was 0.05 percent.

Investors were also relieved that another record-setting week of Treasury auctions was over and that the market was able to absorb the additional supply. The Treasury issued $123 billion of new debt this week, including $44 billion in two-year notes, $41 billion in five-year notes and $31 billion in seven-year notes.

The auctions were met with decent demand, quieting concerns that the government's massive spending could eventually saturate the Treasury market, hurting bond prices.

The cost of borrowing between banks was unchanged. The British Bankers' Association said the rate on three-month loans in dollars – the London Interbank Offered Rate, or Libor – remained steady at 0.281 percent.